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Needle Still Points North

By Silvia Marchetti
     ROME(MNI) - Italy will respond to a European Commission query about its
2020 budget plans with further details on how it plans to curb public spending
and crack down on tax avoidance, but it will not propose any additional fiscal
tightening, officials told MNI.
     "We do not intend to further reduce our 2.2% of GDP deficit target for next
year, which is needed to support the economy, nor do we believe that the EC will
make such a request," said a source with ties to the 5-Stars Movement, which
shares the governing coalition with the centre-left Democrats.
     Italy will respond on Wednesday to a letter from the European Commission
requesting clarifications of fiscal plans that will form the basis of the
upcoming budget law, and voicing concern that Italy will fail to comply with a
call for a reduction in its structural deficit equivalent by 0.6% of GDP.
     "The 0.6% structural adjustment was recommended months ago," said the
source close to 5-Stars, "The outlook has worsened since then."
     In September Italy cut its 2020 growth forecast to 0.1% from the 0.2% it
had foreseen in April and raised its deficit target to 2.2% from 2.1%.
     "The slightly higher deficit is needed to counterbalance the
slower-than-expected growth, worsened by the impact of global tensions and the
deterioration of the global outlook," said the 5-Stars source.
     Another source familiar with the negotiations between Italy and the EC said
Brussels' request for clarification had been part of an ordinary dialogue
between the parties, and noted that other member states had also received
similar letters.
     "We are confident that the EC will not request any further fiscal
tightening nor changes to the bulk of the draft fiscal plan, which respects debt
sustainability rules as per existing EU rules," the source said. "We will
clearly explain that our public debt is sustainable."
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
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